Firm tea prices set to continue

Demand driven by growth in Asia

29 February 2012, Rome – Early forecasts for 2012 indicate continuing firm prices for tea, which averaged $2.85 per kg in 2011, according to FAO’s Intergovernmental Group on Tea.

High prices reflect the fact that demand for black tea, which accounts for most of world production, has exceeded supply since 2009, the Group reported at its recent biennial meeting in Colombo, Sri Lanka.

The higher tea prices resulted in an estimated 2.2 percent increase in the export earnings of producing countries in 2011, significantly benefitting their rural incomes and household food security.

Consumption

Total world tea consumption increased by 5.6 percent in 2010 – the latest year for which figures were available -- to 4 million tonnes, and was underpinned by the rapid growth in per capita income levels, particularly in China, India and other emerging economies.

In China, total consumption increased by 8.2 percent in 2009, and 1.4 percent in 2010 to reach 1.06 million tonnes, the largest in the world. In India, consumption expanded by 2.4 percent in 2009 and 1 percent in 2010 to reach 828 890 tonnes.

Production

Meanwhile world tea production increased by 4.2 percent to 4.1 million tonnes in 2010. Black tea output increased by 5.5 percent in response to record prices while green tea output increased by 1.9 percent. China remained the world’s largest tea producing country with an output of 1.4 million tonnes and a 33 percent share of the world’s total.

The Group said its review of the world tea market indicates an improvement in the fundamental oversupply situation seen in recent years, with supply and demand coming into greater balance at prices higher than over the last decade. But that trend will not continue if growers over-react to current firm prices, it warned.

Looking ahead to the next ten years, the Group estimated that world black tea production will grow at almost 1.9 percent annually to reach 3.28 million tonnes by 2021 and also come into equilibrium with demand at a price of $2.75 per kg – just under the current price.

FAO calculates its world composite tea price on the basis of the weighted average prices for black tea realized in the world market’s major tea auctions.

Green growing fast

The projected production growth rate for black tea at 1.87 percent is slightly lower than the 1.99 percent annual growth averaged over the previous decade. Tea consumption is set to grow at 1.8 percent per annum and reach 3.36 million tonnes in 2021.

World green tea production is expected to reach 2.6 million tonnes in 2021, growing much faster than black tea, the Group found. Green tea’s estimated growth rate of 7.2 percent reflects significant anticipated growth in China, where production is expected to reach 2.3 million tonnes.

Among other recommendations, the Group urged diversification into other market segments such as organic tea.